MAKING MONEY IN ANY MARKET
Make Money In Any Market byUnderstanding "Herd" Behavior by Larry Edelson
Dear Subscriber,
If you're like the average investor, you're probably wondering how can stocks rally when the economy continues to sink?
How, too, can commodities — especially oil — surge when unemployment continues to rise and businesses are shutting their doors left and right?
I consider the answer to both of these questions one of the most valuable lessons you can understand about the markets.
After I explain the answer, I'll then respond to some of the most popular questions I've been receiving lately. And to wrap up this week's column, I'll give you a quick update on what I'm seeing in the markets.
Now, the sooner you understand the answer to the two foregoing questions, the more money you'll make in your investments.
The Economy And The MarketsAre Often Two Different Animals
Huh, you're asking? What's Larry talking about?Let me explain — and be sure to keep your thinking cap on!
First, the economy. Suppose you're in the market to buy a new appliance, say an LCD TV, a washing machine, or a car. Aside from the different makes, models and features, what are the most important factors that influence your decision on what to buy?
If you're like most people, there are three factors ...
1. Your budget.
2. The perceived quality of the brand name of the product. And ...
3. The best price at which you can purchase the item.
Put another way, once you've decided on your budget and the brand name of the item you want to purchase, your chief objective is to shop around and get the best price possible.
Now, compare that to the markets, be it stocks, bonds, or commodities.
Sure, like everyone else, you want to buy low with the aim of selling higher.
BUT, you never really know what a "low" price is for a particular investment. Nor do you know what a "high" price is, at which you will sell that investment.
Furthermore, when you're buying a particular investment, so are tens of thousands, even millions of other investors. So not only do you have competition, but you also have scores of other investors who have either a bullish or bearish sentiment about the investment you're looking to buy.
Quite a bit different from buying a new LCD TV, a washing machine, or a car.
One is a personal choice; the latter, the investment, a public choice dictated by the herds of investors you're a party to when buying investments.
Notice that word "herd." Because once you understand its implications, you'll see the markets in an entirely new way.
Now listen carefully: With very few exceptions, like say when the Apple iPhone debuted, the economy is not impacted as much by "herding" behavior as the markets are.
Sure, if everyone you talk to says the economy is lousy and your friends are losing their jobs left and right, you might delay the purchase of a new LCD TV out of fear of bad times ahead.
But if the price of a stock you own or are eyeing to buy is soaring, you are far more likely to jump into the market and buy it, or buy more of it, than you are to put it off like the purchase of a new LCD TV.
The chief reason: The herding behavior of investors in markets. Investors move in herds, as giant pools of capital that have an almost inexplicable, unconscious power over your thoughts and feelings ... and that can often be very misleading.
Proof: Despite always aiming to buy low and sell high, more than 90 percent of investors actually buy their investments near the highs and sell near panic lows.
The end result: Most investors lose money better than 90 percent of the time.
Go back to the LCD TV for a moment. You found the best deal and buy the TV. You don't really care whether its price falls a bit or even goes up. You got yourself a good deal and a new LCD TV.
Bottom line: Markets operate on the "herding principal." A very deep and powerful psychology that is nowhere near as present as it is in the day-to-day affairs of the economy.
And therein lies the difference. The reason why at times the markets can soar even while the economy looks lousy.
Eventually, when the economy and the markets (herds of investors) wake up to the gap, the disparity is almost always corrected. Either the economy rises to reflect the optimism in the markets, or the markets collapse to reflect the still negative sentiment in the economy.
The most important point is that there are frequent periods in the markets when they act and behave in total contradiction with the economy. And once you recognize that, you can anticipate "herding behavior" all the better, and start making more money, no matter what the markets or the economy are doing.
Now, I'm sure you're asking: Is there a way to measure "herding behavior?"
Yes, there are several ways. There are technical indicators analysts use such as bullish and bearish sentiment figures, surveys of representative numbers of investors, defining the numbers of bulls versus bears on a percentage basis.
And there are a host of other indicators, such as "relative strength," which measure the strength or weakness of the price trend of an investment relative to other investments, or even to itself.
But in my opinion, in 31 years of experience with technical indicators, there is none better than "cycle analysis" — the science of studying herding behavior in the markets to uncover the hidden psychological forces that drive investors to move in groups.
I've studied market cycles all my life. And cyclical analysis is my chief timing tool. There is no better way to time investments than cyclical analysis. It identifies herding behavior.
And it can help you make serious money in the markets, especially when what's happening in the markets is in contradiction with what the economy, the news, the media (and most other analysts) are telling you.
I've been giving you a glimpse of my cycle analysis in previous columns. It helped me identify for you the March low in stocks, and make investment suggestions that now show open gains of as much as 44.9 percent — while almost all other investors and analysts are still wondering how the markets could rally when the economy still looks so bad.
My recommendation when it comes to investing: Keep the economy and the markets separated in your mind. They are not always synonymous.
Dear Subscriber,
If you're like the average investor, you're probably wondering how can stocks rally when the economy continues to sink?
How, too, can commodities — especially oil — surge when unemployment continues to rise and businesses are shutting their doors left and right?
I consider the answer to both of these questions one of the most valuable lessons you can understand about the markets.
After I explain the answer, I'll then respond to some of the most popular questions I've been receiving lately. And to wrap up this week's column, I'll give you a quick update on what I'm seeing in the markets.
Now, the sooner you understand the answer to the two foregoing questions, the more money you'll make in your investments.
The Economy And The MarketsAre Often Two Different Animals
Huh, you're asking? What's Larry talking about?Let me explain — and be sure to keep your thinking cap on!
First, the economy. Suppose you're in the market to buy a new appliance, say an LCD TV, a washing machine, or a car. Aside from the different makes, models and features, what are the most important factors that influence your decision on what to buy?
If you're like most people, there are three factors ...
1. Your budget.
2. The perceived quality of the brand name of the product. And ...
3. The best price at which you can purchase the item.
Put another way, once you've decided on your budget and the brand name of the item you want to purchase, your chief objective is to shop around and get the best price possible.
Now, compare that to the markets, be it stocks, bonds, or commodities.
Sure, like everyone else, you want to buy low with the aim of selling higher.
BUT, you never really know what a "low" price is for a particular investment. Nor do you know what a "high" price is, at which you will sell that investment.
Furthermore, when you're buying a particular investment, so are tens of thousands, even millions of other investors. So not only do you have competition, but you also have scores of other investors who have either a bullish or bearish sentiment about the investment you're looking to buy.
Quite a bit different from buying a new LCD TV, a washing machine, or a car.
One is a personal choice; the latter, the investment, a public choice dictated by the herds of investors you're a party to when buying investments.
Notice that word "herd." Because once you understand its implications, you'll see the markets in an entirely new way.
Now listen carefully: With very few exceptions, like say when the Apple iPhone debuted, the economy is not impacted as much by "herding" behavior as the markets are.
Sure, if everyone you talk to says the economy is lousy and your friends are losing their jobs left and right, you might delay the purchase of a new LCD TV out of fear of bad times ahead.
But if the price of a stock you own or are eyeing to buy is soaring, you are far more likely to jump into the market and buy it, or buy more of it, than you are to put it off like the purchase of a new LCD TV.
The chief reason: The herding behavior of investors in markets. Investors move in herds, as giant pools of capital that have an almost inexplicable, unconscious power over your thoughts and feelings ... and that can often be very misleading.
Proof: Despite always aiming to buy low and sell high, more than 90 percent of investors actually buy their investments near the highs and sell near panic lows.
The end result: Most investors lose money better than 90 percent of the time.
Go back to the LCD TV for a moment. You found the best deal and buy the TV. You don't really care whether its price falls a bit or even goes up. You got yourself a good deal and a new LCD TV.
Bottom line: Markets operate on the "herding principal." A very deep and powerful psychology that is nowhere near as present as it is in the day-to-day affairs of the economy.
And therein lies the difference. The reason why at times the markets can soar even while the economy looks lousy.
Eventually, when the economy and the markets (herds of investors) wake up to the gap, the disparity is almost always corrected. Either the economy rises to reflect the optimism in the markets, or the markets collapse to reflect the still negative sentiment in the economy.
The most important point is that there are frequent periods in the markets when they act and behave in total contradiction with the economy. And once you recognize that, you can anticipate "herding behavior" all the better, and start making more money, no matter what the markets or the economy are doing.
Now, I'm sure you're asking: Is there a way to measure "herding behavior?"
Yes, there are several ways. There are technical indicators analysts use such as bullish and bearish sentiment figures, surveys of representative numbers of investors, defining the numbers of bulls versus bears on a percentage basis.
And there are a host of other indicators, such as "relative strength," which measure the strength or weakness of the price trend of an investment relative to other investments, or even to itself.
But in my opinion, in 31 years of experience with technical indicators, there is none better than "cycle analysis" — the science of studying herding behavior in the markets to uncover the hidden psychological forces that drive investors to move in groups.
I've studied market cycles all my life. And cyclical analysis is my chief timing tool. There is no better way to time investments than cyclical analysis. It identifies herding behavior.
And it can help you make serious money in the markets, especially when what's happening in the markets is in contradiction with what the economy, the news, the media (and most other analysts) are telling you.
I've been giving you a glimpse of my cycle analysis in previous columns. It helped me identify for you the March low in stocks, and make investment suggestions that now show open gains of as much as 44.9 percent — while almost all other investors and analysts are still wondering how the markets could rally when the economy still looks so bad.
My recommendation when it comes to investing: Keep the economy and the markets separated in your mind. They are not always synonymous.
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